Ambrose Omordion is the Chief Research Officer at Invest Data Limited. In this interview, he spoke about the performance of Exchange Traded Funds, ETFs, and urged the Nigerian Stock Exchange, NSE, to up its effort on enlightenment campaign about activities of the exchange and products available for trading.
By Nkiruka Nnorom
HOW will you rate the performance of Exchange Traded Funds, ETFs, since its introduction by the Nigerian Stock Exchange, NSE?
For any investor in the market, Exchange Traded Fund, ETF, is for you to save. Some of the ETFs that are listed on the Nigerian Stock Exchange, NSE, are paying dividends to their holders, which tells you that investors can really hold on to them at a time like this when the market is declining.
Exchange traded funds are not as volatile as ordinary equity because the managers invest in some selected equities. If you are trading on your own as an investor, you can lose money, but it is difficult for those that are trading with the help of professionals to lose money. Though the returns at the end of the year might not be huge, but your capital will be safe.
It is instructive to note that this asset class has not really done well because the stock exchange has not done enough to educate investors about some of these asset classes. The stock exchange should engage more in enlightenment campaign and once that is done, the ETF can make more impact on ordinary shareholder’s portfolio. I think they should do more awareness creation than introducing additional products.
What is the participation level of domestic retail and institutional investors in the scheme?
I will tell you that domestic investors’ participation in ETF is very low because the little trading that is done on ETF is by operators like us and other high net-worth investors who want to diversify their portfolio. An average Nigerian investor don’t play in that space because they don’t have the understanding yet, except for domestic institutional investors who also deal on products like this.
Given that the net flow from ETF in Nigeria grew by mere eight percent in the last four years, what do you think the regulators and government should do to draw more attention to this asset class and to the market?
Like I said earlier, what is needed is more of investor education. The Exchange and the Securities and Exchange Commission, SEC, should not concentrate on just journalists and analysts’ training. They should also engage in educating ordinary Nigerians that can invest long term, those that put their money in ‘esusu’. You should understand that when ordinary Nigerians know that they can make money by investing in good stocks, they will come to the market and the money they invested will stay in the market for a long time. We don’t need to depend on foreign investors to move our market. It is because we don’t have enough Nigerians playing in the market that we keep looking unto foreign investors to move our market. We should play our own part by educating Nigerians; go to the primary and secondary schools and teach them about the importance of savings and investment. If they understand investment, even those in secondary schools will start saving money and start investing for themselves. Let Nigerians know from very young age that no matter your profession, you can invest.
Is there any role you think regulation could play in boosting the performance of the ETFs?
I will give kudos to SEC. Three weeks ago, the Commission said it is coming up with a curriculum to educate students on investment. If that curriculum comes out, it will guide those of us that are into education and investment on exactly what SEC wants us to teach the investing public. As at today, we have our own programme, we want to see the programme that SEC is coming out with and know what more we could do so that Nigerians will become more aware of investment in the stock market.
Everywhere in the world, it is not just buying houses or stocks that matters but how to manage them. If you understand what you are doing, it will give you more confidence to trade whether in equities, bonds or ETF.
Year-to-date, the market has recorded over 18 percent negative return, so where do you see the market at the end of this year?
The market is going to close the year in red because the political landscape in Nigeria has changed since 2014. If you look at the history of the country, the market is usually up in pre-election year, but the market has been down since this year, even much more than what we saw in the pre-election period in 2014.
This shows that the dynamics in the political environment is becoming more complex and it is sending fear to the investing public and that is why people are holding on to their money until the election is over. As we speak now, the political parties have started campaign, but we have not seen real issues from all the political parties apart from Atiku Abubakar saying that he wants to privatise Nigerian National Petroleum Corporation (NNPC). It is a good idea but he has not told Nigerians how he wants to go about it.